Mideast oil earnings could triple over next 14 years

Six Middle East oil exporters stand to earn more than $6 trillion by 2022, and how they invest the funds could have financial and political repercussions that last decades, according to a report released on Thursday.

With oil at $70 a barrel, the six Gulf Cooperation Council countries would reap export revenues of $6.2 trillion over the next 14 years, triple the amount earned during the previous 14, the McKinsey Global Institute said.
The investment choices of the six countries — Saudi Arabia, the United Arab Emirates, Kuwait, Qatar, Oman and Bahrain — “will affect interest rates, liquidity and financial markets around the world,” the report said.

“The new fortune also comes with risks,” it added. “A flood of liquidity into global markets could cause asset price bubbles, fuel profligate lending and result in a poor use of global capital.”

To keep inflation down and boost profits on their earnings, the Gulf countries have to recycle their massive oil revenues into global capital markets. They do this by purchasing assets such as U.S. Treasuries or equities or, in some cases, buying real estate or investing in private equity funds.

For global markets, the main focus will be on those petrodollars earmarked for investment abroad. Assuming $70 oil and a 6.1 percent annual increase in domestic investment — the average rate over the past 14 years — McKinsey estimates the six states will have $3.5 trillion to invest abroad between now and 2020, nearly twice their current foreign wealth.

Guardian